Fiat Says Profit to Fall on U.S. Jeep Snags, Europe Woes

Tommaso Ebhardt

March 19, 2013, 2:54 PM EDT

Fiat SpA, the Italian carmaker that controls Chrysler Group LLC, said first-quarter earnings will fall as U.S. delivery snags at the Jeep sport-utility brand compound the effects of Europe’s auto-market contraction.

Fiat is sticking to its full-year forecast for growth in trading profit, or earnings before interest, taxes and one-time gains or costs, as it expects to make up for the decline in the first three months, Sergio Marchionne, chief executive officer of both manufacturers, told reporters today in Geneva.

“This won’t be a great quarter, but the important thing is that we’re confirming our 2013 targets,” Marchionne said after the annual shareholders meeting of product-inspection provider SGS SA, of which he’s chairman. At the same time, “there’s no certainty when Europe’s sales crisis will end.”

Marchionne is relying on Auburn Hills, Michigan-based Chrysler to sustain earnings as he works to end losses at Fiat’s mass-market brands in Europe that widened to more than 700 million euros ($912 million) last year. Turin-based Fiat, which would have posted a 1.04 billion-euro loss in 2012 without Chrysler, plans to boost trading profit to as much as 4.5 billion euros in 2013 from 3.81 billion euros last year.

Fiat, General Motors Co., Ford Motor Co. and PSA Peugeot Citroen are among manufacturers planning a combined 30,000 job cuts in Europe in response to the shrinking car market. The four carmakers led a 10 percent decline in European auto sales in February, according to industry figures released today.

Stock Falls

Fiat fell 1.3 percent to 4.49 euros at the close in Milan. That pared the stock’s gain this year to 18 percent, valuing the manufacturer at 5.61 billion euros.

Marchionne’s turnaround plan in Europe, where the automotive market is set to shrink for a sixth consecutive year, calls for 16 upscale cars, including an Alfa Romeo SUV, a small SUV from Chrysler’s Jeep unit and six models at the luxury Maserati division. The new vehicles will help fill capacity at Fiat’s under-used assembly lines in Italy.

Jeep has a “volume gap in the U.S., despite demand rising there,” as production is lost while factories retool for new models from the brand, Marchionne said.

The Italian carmaker won’t alter financial forecasts for 2013 amid the sales crisis in Europe, Marchionne said earlier this month at the Geneva car show. The CEO, who grew up in Canada, has estimated that car-industry losses in Europe totaled $7 billion in 2012.

Financing talks with banks are under way as Fiat prepares to buy the 41.4 percent stake in Chrysler that it doesn’t already own from the United Auto Workers pensioners’ health-care fund. The company has started the valuation process for the holding, Marchionne said March 5.

Court Ruling

A U.S. court may rule in June or July on the amount Fiat must pay the UAW fund, known as a voluntary employees beneficiary association or VEBA, which has been allowed to submit more filings, Marchionne said today. That’s later than his estimate in December that a decision would come in the first quarter.

Chances are about even between Fiat buying out VEBA and the fund holding an initial public offering of its stake in Chrysler, and talks with banks on the possible share sale are in preliminary stages, the CEO reiterated. The Italian company won’t decide before mid-2013 on whether to make an offer for VEBA’s stake or letting it proceed with the IPO, he said.

Meetings with banks about a possible stock offering are “very preliminary,” he said, adding that no mandate can be given without agreement between Fiat and the VEBA.

Fiat may pay about 2.23 billion euros to buy the remaining stake, according to an estimate from Goldman Sachs Group Inc., which sees a deal possible within 12 months.

‘Possible Benefits’

Following a merger of Fiat and Chrysler, the manufacturer should consider “the possible benefits” of a U.S. stock listing, Marchionne said.

Marchionne, 60, was CEO of Geneva-based SGS, the world’s largest product-inspection company, from January 2002 until he took the Fiat position in mid-2004. Exor, the Agnelli holding which controls Fiat, is SGS’s biggest shareholder with a 15 percent stake, according to data compiled by Bloomberg. Fiat Chairman John Elkann is also an SGS board member.

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